Contract Killers

Web Thumb Contract Killer

Michael Hardy | January 27, 2020 

In 1919, General Motors signed a 10-year contract with Fisher Body, a former carriage maker turned automobile contractor, to become GM’s exclusive supplier of closed-body chassis. Under the terms of the agreement, GM guaranteed to pay Fisher Body its manufacturing costs plus an additional 17.6%, as well as make a one-time investment of $27.6 million to help the company expand its production capacity. Both sides initially seemed happy with the contract. Then, in 1922, GM’s sales began to skyrocket as America emerged from a recession. Faced with growing demand and hoping to reduce transportation costs, GM asked Fisher Body to build new manufacturing plants next to its existing assembly lines.

Fisher Body said no. There was nothing in the contract requiring it to build its plants in a particular location, and it would be cheaper to simply expand its existing plants in Cleveland and Detroit. GM had no choice but to spend around $20 million building the new body plants itself — next to its own assembly lines in Flint, St. Louis and Tarrytown, New York — and then leasing them to Fisher Body. Four years later, in part to avoid such conflicts of interest, GM decided to buy Fisher Body outright.

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 by Daily Domer Staff

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